Poland's inflation hits 2.5% target as fuel and food prices slide

Inflation data surprises to the downside

Poland's consumer price inflation fell to 2.5% year-on-year in June 2026, down from 3.1% in May, according to a flash estimate released by the Central Statistical Office (GUS) on Tuesday. The reading came in below the median forecast of 2.7% from analysts polled by PAP Biznes and returned inflation exactly to the National Bank of Poland's target of 2.5%, with a tolerance band of plus or minus 1 percentage point. Month-on-month, consumer prices dropped 0.5%, accelerating from the 0.3% decline in May and exceeding expectations of a 0.2% fall. The last time inflation was at this level was in February.

Fuel and food lead the decline

Fuel prices were the largest contributor to the disinflation, falling 7.4% compared to May, though they remained 5.3% higher than a year earlier. The sharp monthly drop occurred even though the government's CPN programme of lower VAT on fuels expired in mid-June. Food and non-alcoholic beverages prices declined 0.3% year-on-year, the first negative reading since October 2016, and fell 0.7% from the previous month. Good supply conditions on domestic and global agricultural markets, with farm-gate prices of basic products down over 16% year-on-year in May, helped push food prices lower. Energy prices, however, remained a source of upward pressure, rising 4.8% annually, though they dipped 0.4% month-on-month.

Market reaction: Zloty weakens, bonds rally

Financial markets quickly repriced interest rate expectations. The Polish zloty lost ground, with the euro rising to 4.30 PLN, the highest since early March, and the dollar reaching 3.772 PLN, its strongest since late May 2025. Yields on Polish government bonds fell, as investors saw less chance of further rate hikes. The two-year yield dropped 5 basis points to 4.07%, the five-year fell 14 bp to 4.70%, and the ten-year shed 5.4 bp to 5.27%, its lowest since early March. This reflects a shift toward expectations that the Monetary Policy Council may even consider rate cuts, though some economists remain cautious.

We forecast that inflation in June was 2.7 percent.

Outlook: Rate cuts still distant

Despite inflation hitting the target, economists are not convinced that interest rate cuts are imminent. Kamil Łuczkowski of Bank Pekao said he does not expect rate reductions this year, pointing to the July inflation projection from the NBP, which is likely to show inflation still hovering near the upper band of the target at around 3.5%. Core inflation, excluding energy and food, is estimated to have edged down to around 3.0% in June from 3.1% in May, but remains above the headline rate. Detailed inflation data for June will be published by GUS on 15 July.